The Federal Reserve is expected to keep interest rates steady in July, despite pressure from Trump to lower them. Inflation is rising due to tariffs, but the economy is still solid. Powell is facing criticism and threats from Trump but is maintaining the Fed’s independence. Markets anticipate a full percentage point cut by 2026.

Inflation data shows prices rising in trade-sensitive categories, indicating the impact of Trump’s tariffs. The Fed is likely to hold rates steady, but dissenting votes may occur due to disagreement about tariff-induced inflation. The potential for higher long-term interest rates and a worsening fiscal position are concerns.

FOMC divisions persist, with some members advocating for an immediate rate cut. Waller believes risks to the economy warrant cutting rates sooner rather than later. He expects the inflationary impact of tariffs to be short-lived and sees increased risks to the labor market. Analysts anticipate a potential dissenting vote at the next meeting.

Speculation surrounds Powell’s successor, with contenders including Waller, Warsh, Hassett, and Bessent. Market watchers expect a more accommodative Fed, with bond futures traders pricing in rate cuts. A focus on the labor market will be crucial in determining future monetary policy decisions based on economic data and inflation trends. The Federal Reserve is expected to keep interest rates steady in July due to Trump’s tariffs pushing inflation up. Pressure mounts on Powell to cut rates, with markets anticipating a full percentage point of cuts by the end of 2026. The threshold for “material weakening” is around 4.7% to 4.8%.

Financial markets show no concern about the Fed lagging behind on rate cuts. Bond futures traders predict a 95% chance of steady rates next week, with a 60% likelihood of a rate cut in September. Analysts foresee more regular rate cuts in 2026 as the Fed aims for a neutral stance, with Vanguard expecting 1 percentage point of cuts by the year’s end.

Read more at Morningstar.: Will the US Fed Cut Interest Rates in July?